SSS - Some Thoughts on the Short Side

Published : April 10 2012 at 11:32 ET

With the market weakening we of course start to look for potential short-sale set-ups in formerly leading stocks. A couple we are trafficking in currently are (AMZN) and CF Industries (CF). AMZN is clearly in a head and shoulders type of formation, and even the head of this formation is itself a compact little head and shoulders formation as well. The stock is pulling down into a prior area of congestion, as we see in the daily chart, and engaging in a little "Fun With Trendlines" we can see that there are some potential areas of support, which, if breached, might indicate that further downside is in the cards for AMZN. Of course, this all depends on the general market. Since breaking below its 200-dma several days ago, AMZN has been unable to mount any significant rally and may be in position to test its 50-dma down around the 187.80 level.


CF looks like a big POD (Punchbowl of Death) formation which is also a big, ugly improper double-bottom formation with the second low forming above the first when you want to see it form below the first low. CF has busted its 50-dma now for the third time, and the prior 2 times it was able to rally back above the line. This time, invoking the Rule of Three, it may not be so lucky, particularly if the general market gets into further trouble. Both AMZN and CF are shortable, theoretically, using 3-5% maximum upside stops, or the 200-dma in AMZN and the 50-dma in CF can be used as upside guides for a stop on any short-sale positions. As we said, we are currently trafficking in both of these, and could be in and out of them both today or over the next few days depending on how the general market situation pans out. AMZN is in position to potentially rally from here, so that must be kept in mind if one enters a short position here. We would prefer, however, to be short AMZN from up a little higher, closer to the 200-dma. CF, is closert to its 50-day in the 183-184 area, hence offers a closer stop.


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